What is the difference between Co-signing a loan or being a joint applicant?

Co-signing a loan  

A home is one of the largest purchases you and your spouse will make during your lifetimes. As a result, its ownership is going to have important implications for the time to come. When embarking on this journey, couples are usually asking themselves whose names should they list on the house title and on the mortgage. The majority of the couples are looking to have both names on house title and on the mortgage, but it is not always the best idea. It is possible that one of the partner’s credit is a mess. Or one partner does not work and is not able to show any income when applying for the mortgage.  Does the lender call it co-signing a loan if my parents help me apply?

In today's lending atmosphere, a lender views all persons on a mortgage equally liable to repay the monthly payment.  This means there is no difference anymore for a person co-signing a loan or applying for a loan.  It's one and the same.  

Mortgage Loan vs Title

Fortunately, it is possible for two people to own a home even if only one of the spouses is applying for the mortgage loan. To begin with, you should note that a mortgage and a title are two different things. A mortgage is the agreement to pay the amount borrowed while the title states the ownership rights for the property.  It can happen that a person who is on the title is NOT also on the loan to repay the mortgage against the same property. A lender provides you a mortgage loan to help you buy a house. It comes with a specified interest rate and you will repay it by making payments every month. It is possible to have only one name on the mortgage loan and two names on the tile. The person on the mortgage loan is the one responsible for the monthly payments and he/she will bear the consequences if the money is not paid back on time.  That remains true even if that same person removed themselves from the title.  So word of caution is to never remove yourself from the title if you are still obligated on a loan for the property.  It is very important that you understand the title and how it affects your home ownership & your financial obligations.

Mortgage Loan & Loan Approval

There is a very simple reason to make you choose to have a single name on the mortgage. When you and your spouse jointly apply for a mortgage, the lender is not going to use an average of both borrowers’ FICO scores. Instead, for each borrower, they are asking for FICO scores from three credit-reporting agencies. The lenders use this information to calculate the median value for each borrower. And here comes the interesting part: The lender uses the lower score for the joint mortgage application. So, if you have a better score than your spouse, you should think before applying for a joint mortgage. If you decide to apply alone due to your partner’s low score, be aware that a single income will qualify for a smaller loan amount. Our advice is to carefully consider the options.  Make some simulations with the lender to find out which one is best for your particular situation. It could be wise for your situation to add the name of your spouse on the house title.  Inquire with your lender as many mortgages don’t allow any changes until you repay the debt in full. Keep in mind that the person that is on the mortgage is obligated to pay it. If you sign it, you can be held responsible by the mortgage lender.

Conclusion

Let’s say you have chosen to have only one name on the mortgage.  And you are concerned about the shared ownership of the house. Well, the truth is that you don’t have to make any worries. Both names can be in the title, even if only one of them is on the mortgage. There’s one situation that can put you in a potentially difficult situation: not being in any of the two. As the law stands, you have no ownership rights as long your name is not on the title. The rule of the ownership falls back to those whose names are on the title. Do you have any question about getting a mortgage? Casey Moseman can help you out.  She has specialized in all types of credit histories and lifestyle situations and can help you regardless of your circumstances. She will gladly use every tool at her disposal to help you achieve your goals. Casey is ready to help you with your mortgage problems; If you need her help you can contact her at 702-271-1274